It’s now almost 18 months since the UK voted to leave the EU. With the Brexit negotiations still at an early but seemingly critical stage, the ramifications of the vote are still hotly debated. In what is undoubtedly a complex, emotional and highly political debate, many myths and misperceptions persist on the subject of Brexit from all sorts of angles.

Leaving the politics to one side, our focus is purely on the economic consequences of Brexit. And so, following the “Economic impact of Brexit” report that we exclusively published in early 2016, we have again commissioned Capital Economics to revisit the subject with a new report, “Brexit – where are we now?”.

The report combines innovative and in-depth analysis of existing information and statistics, a wide range of economic impact studies, and fresh research, as well as Capital Economics’ macroeconomic projections.

Broadly speaking, we agree with many aspects of the report and its key conclusions, and have found the report valuable, interesting and ultimately, from the perspective of our investment strategy, very reassuring. It reinforces our confidence that the portfolios are positioned appropriately for the long-term outcomes that are forecast. That is why we want to share it with you.

We expect a deal to be struck with the EU in the coming months. This report suggests that neither side can be entirely comfortable about the prospect of walking away from the table without an agreement, as do the Bank of England Financial Policy Committee notes released last month. These highlighted that £20 trillion of uncleared derivatives contracts, impacting tens of thousands of counterparties, were potentially at risk of disrupting the functioning of financial markets in the event of no deal. Nevertheless, the Capital Economics report indicates that even in the event of no deal, the long-term prospects for the UK economy are nowhere near as bleak as many have predicted.

That conclusion will surprise many people, if the results of our Twitter poll are anything to go by. Almost half of the 42,000 that voted believe that the UK economy is “facing a cliff-edge” as a result of Brexit. This negative consensual view is reflected in the UK stock market, helping to forge a compelling investment opportunity in domestically-focused stocks, which the funds are positioned to exploit. The Capital Economics report, which explores the key debates in detail, provides considerable grounds for optimism that the long-term outcomes for the UK economy will be far better than the alarmed consensus would suggest.

Scope of this report

The Capital Economics report reviews the likely positive and negative impacts from Brexit for many key sectors of the economy, including manufacturing, financial services, life sciences, property, construction, the public sector, consumers and trade in general. It considers the impacts that may stem not only from base case scenarios, but also from other eventualities. As a result, each sectoral chapter begins with the highlights of the implications for that sector, plus a description of what would constitute the Brexit base case, and the corresponding high case and low case.

Conversations

Interesting but predictably rosy assessment of post-Brexit Britain as CE are known for putting a positive spin on what are, at best, uncertain outcomes resulting from Brexit. Their claim of being impartial is also not helped by the fact that Mr. Bootle, CE’s arch-Brexiteer director, wrongly predicted the near-term collapse of the EU several times.
There is a whiff of bias in the air when Mr. Woodford repeatedly picks the same research group that appears to confirm his investment thesis

Drrr…profiting by betting on uncertain outcomes, isn’t that what we are all about?
Why have people been so brain-washed into thinking that central planning (which is what the grasping, bureautric EU is all about) is good for markets?
Open, nimble, innovative, entrepreneurial – these are all words that apply to free trade and not to the over-regulation of a bloc.
The only danger is if the government listen to the whinging liberal BBC and the commentariat and accept a bad deal rather than no deal.

Unfortunately this has confirmation bias written all over it – like the prior report commissioned and published before the actual Brexit vote. It almost convinced me!. Whichever way I stack the numbers Brexit is a disaster for the UK economy. When I add in the current political situation it looks even worse.

Just to check though… where do you get your 500.000 number from? Sure you’re right and there’s only half a million consumers in the EU, as they’re all over here taking our jobs aren’t they?! Bloody Johnny Europeans! But just to check…?

I was also amazed to learn that we currently only sell to the EU and not to any other markets. God, bring on cliff edge Brexit and the WTO rules in that case. They can’t be much worse than what we already have if we’re not able to sell even a single thing outside the EU!

I never had the opportunity to vote but would have joined the great news all round. Just let us get on with our exit as quickly as possible so that we can exploit the great opportunities that exist. The press and certain politicians have been fat too negative.

TOTALLY AGREE WITH YOU DAVID THE SOONER WE GET OUT OF EUROPE THE BETTER FOR OUR COUNTRY AND ITS PEOPLE WE VOTED OUT ( AND I KNEW WHAT I WAS VOTING FOR AS I AM NOT ON THE GRAVY TRAIN )
GREAT POST AND THANKS FOR POSTING NEIL AND HIS TEAM
THANKYOU

Seriously? Roger Bootle of Capital Economics is a Daily Telegraph columnist and Brexiteer. He has described Brexit as “the Great Escape”. (You get the reference there? Not that he is a little Englander, of course. Not a bit of it.) His views may be right. They may be wrong. But either way: you do not learn anything useful about whether Brexit is going to be a good thing by going to a man who believes that Brexit is going to be a good thing and asking him whether he believes that Brexit is going to be a good thing. You could probably guess that he will tell you that Brexit is going to be a good thing. And so he did. What a surprise. You could spend your time and our money much more usefully by commissioning the sort of research that Kerridale Capital published yesterday into NEOD001 and the likelihood of its Phase 2b and 3 trials being successful.

I agree with the view that it would be nice to see research that is relevant to the holdings (like the Kerridale Capital example you sight) and that’s fair feedback

However I disagree with the comments you and others have about Brexit. If you see it as a simple binary of “Brexit” and “not Brexit” or good and bad, then maybe what this article is trying to do is get you away from thinking in such simple binaries. It’s complicated and what Woodford have done is get data-driven research that they can use to inform their investing.

As they say “a man without facts is a man with an opinion.” If Neil and his team were to write opinion pieces I’d probably pull all of my money out right away. But they don’t: they use data and fact to support their assertions.

My interpretation here is that we’ve learned something important: sectors and trade are going to grow at certain rates, and actually our investors at Woodford will exploit opportunities that come up in these spaces with businesses that are undervalued.

I hear a lot of “the UK is an awful political landscape and is therefore a bad place to invest” talk. Opinion. Why not go put your money to work in the US or elsewhere? Well, there’s an answer to that: it’s a well thought of but highly overpriced market on a slew of metrics.

Actually a strategy of picking out the pockets of value in the UK makes a lot of sense. I applaud the W team for using factual analysis to get their work done

It is an interesting development in the sector. Some analysts are suggesting that the deal would be an opportunity to rebase the dividend but we are not convinced that this is the right conclusion to draw. The company is aware of how important its dividend is to its shareholders. There would be an opportunity to reduce costs in the combined retail business (if approved) and the new SSE ex-retail could command a higher marketing rating. Let’s see how things progress.

Feedback so far has been broadly in line with what we had expected. There wouldn’t be much point in us publishing a comprehensive report on Brexit – or any other subject for that matter – which didn’t support some aspect of our over-arching investment thesis. In fact, it could be counter-productive.

But it is important that you realise that this doesn’t mean that this is the only view that Neil and the team are absorbing. On the subject of Brexit, Neil has had input from many different sources and perspectives. Some of those views have been more positive than the view reflected in this report – many of them, on the other hand, have been more pessimistic, as you might expect given the consensus position which I suspect is reflected in our twitter poll results.

As is the case with any issue – macroeconomic or stock specific – all of these inputs are heard, digested and considered, as a vital part of the judgement forming process.

….I cant think of anything Bootle has got right since 2008 writing for the Torygraph. Some comment on the Kerrisdale short urgently required by your investors considering size of position in portfolio….Kerrisdale are no mugs….

But really, what was the point of commissioning an outside report from an agency which you knew from the outset would confirm NW’s rosy view of a post-Brexit economy? Surely the point of getting an external view is to face some hard challenges to your own thinking, not just to reassure yourself that everything is going to go the way you predict.

It’s bizarre decisions like this that led me to sell out of half my stake with Woodford. The way things are going with him jumping in to housebuilders and faddy biotech companies it really seems like this is a sinking ship, sadly

i am concerned that WIM considers a report on the economy as validating or discrediting the current strategy, especially given the poor record of the profession as a whole. ultimately, the performance of the fund stands and falls by the performance of the largest holdings, which incidentally are multinationals. i would much rather rigorous analysis and research is undertaken there, rather than devoting energy to firstly guessing what will happen to the UK economy, and secondly what the impact will be on stocks.

please focus your energy on stock picking, and leave the fortune telling to others. if i’d listened to the ‘experts’, i never would have even invested in a UK fund following brexit.

Roger Bootle is pro Brexit, has written endless articles about death of Euro, ad nauseum, all incorrect. Impartial…joke surely?

UK is going South. Damage is done even with a deal, too late now. The idea lots of countries are queuing up to do tons of biz with uk that we couldnt do when in the EU is absolute rubbish…the UK wasnt going to wake up as the new Singapore the day after Brexit. Madness.

Any thoughts on this? Woodford owns huge chunk of it, another Aliied/Provident disaster??

It is suggested in this report that the prospects life sciences will not simply remain unaffected but rather improve. As a postdoctoral researcher in the University of Cambridge who has been advised (and in some cases obliged) to abstain from EU funding opportunities, I can assure you that Brexit will not benefit the life sciences. This sector also depends on world class talent as a core resource. Upsetting the apple cart by reducing funding pots available to early stage research and reducing the pool of talent available to industry WILL affect the Woodford portfolio more than any other aspect of this report. As a patient capital investor I am deeply concerned.

As a recruiter working in the pharma sector I can tell you don’t need the EU for world case talent. Volume and quality comes from other parts of the world. The Indian national I just placed for example does not speak German, French, Italian or Spanish.
Life science upside comes from deregulation which will help to drive more investment, people and training into the sector – case Japan..

The universities will be fine but I understand people at the top don’t want to upset the apple cart or gravy train

Woodford Patient Capital Trust plc is incorporated in England and Wales, company number 09405653. Registered as an investment company under section 833 of the Companies Act 2006. Registered address Beaufort House, 51 New North Road, Exeter, EX4 4EP.

The Woodford Funds (Ireland) ICAV (the “Fund”) has appointed as Swiss Representative Oligo Swiss Fund Services SA, Av. Villamont 17, 1005 Lausanne, Switzerland. The Fund’s Swiss paying agent is Neue Helvetische Bank AG. All fund documentation including, Prospectus, Key Investor Information Documents, Instrument of Incorporation and financial reports may be obtained free of charge from the Swiss Representative in Lausanne. The place of performance and jurisdiction for all shares distributed in or from Switzerland is at the registered office of the Swiss Representative. Fund prices can be found at www.fundinfo.com.